Comptroller of Treasury of Md. v. Wynne

Maryland has a “state” income tax, Md. Tax-Gen. Code 10–105(a), and a “county” income tax, sections 10–103, 10–106. Residents who pay income tax to another jurisdiction for income earned in that other jurisdiction get a credit against the state tax but not the county tax. Nonresidents who earn income from Maryland sources must pay the state income tax; nonresidents not subject to the county tax must pay a “special nonresident tax.” Residents who earned pass-through income from a Subchapter S corporation that earned income in several states claimed an income tax credit on their Maryland tax return for taxes paid to other states. The Comptroller allowed a credit against state income tax but not against county income tax and assessed a tax deficiency. The Court of Appeals of Maryland held that the tax unconstitutionally discriminated against interstate commerce. The Supreme Court affirmed: Maryland’s personal income tax scheme violates the dormant Commerce Clause. The Court noted previous decisions invalidating state tax schemes that might lead to double taxation of out-of-state income and that discriminated in favor of intrastate over interstate economic activity. That conclusion is not affected by the fact that these cases involved a tax on gross receipts rather than net income, and a tax on corporations rather than individuals. Maryland’s income tax scheme fails the internal consistency test; if every state adopted its tax structure, interstate commerce would be taxed at a higher rate than intrastate commerce. The scheme is inherently discriminatory and operates as a tariff. The Court rejected an argument that, by offering residents who earn income in interstate commerce a credit against the state portion of the tax, Maryland receives less tax revenue from residents who earn interstate, rather than intrastate, commerce income; the total tax burden on interstate commerce is higher. View "Comptroller of Treasury of Md. v. Wynne" on Justia Law